Singer-Terhaar is part of CFA II and III curriculum. It estimates risk premium for some asset, traded at some local market, as weighted average of expected premiums for the case of (1) local market, completely integrated with global, and (2) local market completely isolated from global.

For integrated case, risk premium (RP) for asset i

$$ RP_i = \rho_{i,M} \times \sigma_i \times (RP_M/\sigma_M) $$ ,i.e. correlation of asset with global investable market times deviation times GIM's Sharpe ratio. For isolated case CFA recommends just dropping rho term from the formula above.

Weighting parameter ("integration") is then used to multiply to integrated estimate, and to sum with (1-weighting_parameter) times isolated estimate.

The question is: how to estimate integration?


1 Answer 1


Singer and Terhaar original paper can be found at this link. They do not provide an explanation about how to estimate this factor and just mention that both values provide a boundary.

The CFA curriculum mentions that " For example, it has been observed that developed market bonds & equities are approx 80% integrated and 20% segmented.", however the source was not cited.

  • $\begingroup$ Presumably, these figures come from a UBS white paper "Capital Market Assumptions" by Renato Staub. I can't find the white paper though. $\endgroup$
    – Bob Jansen
    Dec 17, 2016 at 14:27

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